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10 th Annual OECD-WBG-IMF Global Bond Market Forum Secondary Market Liquidity in Domestic Debt Markets April 29, 2008 Washington D.C. Presentation By Phumzile Maseko Director: Domestic Debt Management
CONTENT The focus of the RSA presentation is on the EVOLUTION PHASES FACTORS THAT AFFECT LIQUIDITY ROLE OF DEBT MANAGEMENT
Level of Sophistication EVOLUTION PHASES Debt Issuance & Recording Liability/Cash Management Asset-Liability Management Full Treasury Management Evolution Phases
EVOLUTION PHASES RSA EXPERIENCE Level of Sophistication Start up Debt Issuance & Recording Liability/Cash Management Asset-Liability Management Evolution Phases
DEBT ISSUANCE AND RECORDING Focus on issuing debt given significant imbalance and accounting for debt Characterised by: Developing domestic debt markets Fragmentation and problems in coordinating debt management and with monetary policy Problems in analysing & controlling impact of debt servicing on the budget Problem controlling contingent liabilities
DEBT ISSUANCE AND RECORDING Local currency denominated debt Debt management strategies focused on access to market and smoothing of maturity profile Primary issues done through the SA Reserve Bank and PIC Market making risk for account of Government Debt instruments limited to TB s, fixed income bonds & zeros Maturity profile fragmented extending over 23 years Low bond market turnover - R2.3 trillion Establishment of.. Bond Exchange of South Africa (BESA) 1996 A clearing house (UNEXCOR/STRATE)T Trade reporting, matching and settlement conducted electronically on a daily basis
LIABILITY/CASH MANAGEMENT Focus on debt issuance & managing debt within a risk management framework Characterised by : Full integration of assets (CASH) and liabilities Full identification of contingent liabilities Risk management Benchmark portfolios
LIABILITY/CASH MANAGEMENT Debt management strategies focused on reducing debt cost within acceptable levels of risk Domestic primary issues & secondary market making through Primary Dealers on benchmark issues Market making risk for account of Primary Dealers Diversified domestic debt portfolio, Vanilla, Floaters, ILB s, Retail Bonds and STRIPS added Restructure the maturity profile through switches (R63,2 billion) and buy-backs (R4,5 billion) Benchmark bonds created over the yield curve Established an index-linked bond yield curve Introduced Retail Bonds, focused on the private investors Bond market turnover at R13,8 trillion (2007) Integrated cash coordination
R209 (6.25%:2036 R202 (3.45%:2033 LIABILITY/CASH MANAGEMENT PRIMARY DEALERS 9 5 LOCAL & 4 FOREIGN BENCHMARKS Debt Portfolio 36,000,000,000 31,000,000,000 26,000,000,000 21,000,000,000 16,000,000,000 11,000,000,000 6,000,000,000 1,000,000,000 R198 (3.80%:2008 R196 (10.0%:2009 R153 (13.0%:2010 R205 FRN 2012 R189 (6.25%:2013 R206 (7.50%:2014 R201 (8.75%:2014 R157 (13.5%:2015 R203 (8.25%2017) R204 (8.00%:2018 R207 (7.25%:2020 R208 (6.75%:2021 R197 (5.5%:2023) R186 (10.5%:2026 R210 (2.6%:2028) Bond Codes ZAR
2007 LIABILITY/CASH MANAGEMENT BOND MARKET TURNOVER IMPROVING 16 14 12 10 8 6 Turnover (R trillion) 4 2 0 2006 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
LIABILITY/CASH MANAGEMENT DIVERSIFIED INSTRUMENTS 0.3% 3,6% 1.0% 11.1% 13.4% 74.2% 96,4% Fixed Income ILB Floating rate Treasury Bills Retail
LIABILITY/CASH MANAGEMENT IMPROVED TRANSPARENCY Auction calendars (Annual FI & Quarterly ILB) Chapter 5 of Budget Review Monthly reporting on loan issues, redemptions, extraordinary receipts & payments and cash balances Complied with the IMF s Special Data Dissemination Standards (SDDS) Domestic and foreign deal and non-deal road shows Daily interaction with markets and media
LIABILITY/CASH MANAGEMENT REPUBLIC OF SOUTH AFRICA AUCTION CALENDAR FOR GOVERNMENT INFLATION LINKED BONDS: 2008/2009 APRIL 2008 MAY 2008 JUNE 2008 S M T W T F S S M T W T F S S M T W T F S 1 2 3 4 5 1 2 3 1 2 3 4 5 6 7 6 7 8 9 10 11 12 4 5 6 7 8 9 10 8 9 10 11 12 13 14 13 14 15 16 17 18 19 11 12 13 14 15 16 17 15 16 17 18 19 20 21 20 21 22 23 24 25 26 18 19 20 21 22 23 24 22 23 24 25 26 27 28 27 28 29 30 25 26 27 28 29 30 31 29 30 Public Holiday Announcement Auction Settlement Issued by National Treasury
FULL TREASURY MANAGEMENT FOCUS ON PROVIDING FULL TREASURY SERVICES TO GOVERNMENT AND ITS AGENCIES CHARACTERISED BY: CLIENT SERVICING ASSET-LIABILITY MANAGEMENT FRAMEWORK RISK MANAGEMENT BASED ON MARKET VALUES WITH TECHNIQUES AS VAR BENCHMARKPORTFOLIOS AND RAPM
FACTORS THAT IMPACT ON LIQUIDITY TRANSPARENCY ACTIVE DEBT MANAGEMENT SWITCHES & BUYBACKS CONTRIBUTE TO TURNOVER IN MARKET BUILDING BENCHMARKS REDUCE THE CROWDING OUT EFFECT by Government issuance ALLOWING SPACE FOR CORPORATES TO ENTER CAPITAL MARKET ACTIVE DERIVATIVES MARKETS
FACTORS IMPACTING ON LIQUIDITY Swap turnover 1000.00 800.00 600.00 400.00 200.00 0.00 Jan-01 Feb-02 Mar-03 Apr-04 May-05 Jun-06 Jul-07 Swap turnover
FACTORS IMPACTING ON LIQUIDITY 100 Corporate debt outstanding by issuer class 90 80 70 60 Rbn 50 40 30 20 10 0 2003 2004 2005 2006 2007 Banks Securitisation Commercial Paper Other
FACTORS IMPACTING ON LIQUIDITY DEBT LISTED R' millions R' millions 2006 2007 Nominal Nominal Listed Listed CENTRAL GOVERNMENT 438,120 428,426 MUNICIPAL 3,900 3,900 STATE OWNED ENTERPRISES 57,830 62,982 WATER AUTHORITIES 16,976 18,270 BANKS 55,719 68,839 SECURITISATION 67,448 89,557 OTHER CORPORATES 37,838 45,415 CREDIT LINKED NOTES 4,767 15,985 COMMERCIAL PAPER 40,193 45,366 CROSS BORDER/DUAL LISTINGS 380 2,080 TOTAL 723,171 780,820 PROPORTION OF GOVERNMENT DEBT DECREASED OVERTIME, TO 56% OF TOTAL LISTINGS
DEBT MANAGEMENT ROLES Set clear objectives for debt management should evolve with market conditions and developments Formulate debt management and annual funding strategies within the risk management parameters Coordinate monetary and fiscal policy issues with the Reserve Bank as Government s agent Registrar of domestic bonds Manage state debt cost budget Appoint primary dealers Issue foreign loans for financing purposes Maintain investor relations with all relevant stakeholders
10 th Annual OECD-WBG-IMF Global Bond Market Forum THANK YOU